Nice bubblicious start to the New Year! The third best, in fact, for the S&P500 since 1991.
The two big macro swans – the Eurozone crisis and fear of China’s hard landing — which caused much of the volatility last year have flown the coup, at least, for now. The fiscal cliff has been averted – so, bang, zoom, it’s off “to the moon, Alice!”
We hear lots of chatter these daze about the liquidity trade. That is, the global central bank printing presses levitating asset markets. Imagine the MoMo if, and, when credit starts to expand. Remember the “liquidity, liquidity everywhere” theme that drove the 2005-07 bull market?
This trade can last “longer than you think it can and will reverse faster than you thought it could.” We think the trade, though dangerous in the long run, still has some legs and the inflating equity bubble could surprise many. We could be wrong but that’s our thesis going into the New Year.
The first test will be to how the market reacts to what could be disappointing earnings. Next will be how volatility behaves around the debt ceiling debate. Note the VIX curve steepened big time today.
In the next few days, we will post our “Seven Swans A Simmering,” the potential macro risks we see in 2013 and think you should keep on the radar.
That said, the trend is higher until proven otherwise. Traders seem to be bearish here. Giddy up!
At least for a few more days and then some give back. The S&P500 is within a chip shot of its post-crash high at 1474.51, Happy New Year.
(click here if chart and table are not observable)